Chennai, Oct. 1: India and Sri Lanka ?are on the threshold? of a ?comprehensive economic partnership agreement? (CEPA) , a meeting of the countries? joint business council was told today.

The partnership agreement under negotiation will address the ?shortcomings? in the ?free trade agreement (FTA)? between the two countries that is into its fourth year now, said Jeyaraj Fernandopulle, the Lankan minister for trade, commerce and consumer affairs.

He was speaking at the India-Sri Lanka Joint Business Council?s inaugural session here today.

The new pact that would ?broaden and deepen? the FTA?s scope and content will not only involve trade in goods, but also liberalisation of trade in services and investment cooperation, and an ?effective mechanism for trade facilitation?, Fernandopulle said.

He urged a ?frank and honest assessment? of the FTA?s impact because ?we cannot be complacent with the ongoing trend in our economic relations by simply looking at statistics?.

?We are now approaching the stage of the CEPA, (so) it is very important that we work very closely with each other to resolve the current impediments,? Fernandopulle added.

Among the ?impediments?, he cited problems relating to ?rules of origin? of goods so that a third country did not take advantage of the FTA in the two-way trade between India and Lanka.

Later, in an informal chat with reporters, Fernandopulle dubbed the 20 per cent ?sales tax? imposed by the Tamil Nadu government on Lankan imports as the ?biggest non-tariff barrier we are facing?.

He said the garments sector of his country was hit the most by the sales tax. ?We cannot even fulfil 1 per cent of the 8-million-pieces quota that we have for exports of garments to India.?

Lanka?s high commissioner to India Managala Moonesinghe said a 20 per cent sales tax on all imports by ?one state government? went against the basics of having an FTA.

Describing the time as ripe for consolidation of bilateral trade, Union minister of state for commerce and industry E.V.K.S. Elangovan said the Centre had been apprised of certain ?non-tariff barriers? that had come in the way of the FTA.

?Soon, things will be put on the right path,? he assured the Lankan minister and promised to write to the Jayalalithaa government on the issue.

India?s high commissioner in Colombo Nirupama Rao said India was now the third largest investor in Lanka, significantly as a result of the FTA.

She added that the partnership agreement in the pipeline would push the FTA to a ?qualitatively new dimension in our bilateral relationship?, now that two-way trade had virtually doubled since touching a record $1 billion in 2002.

The finance ministry, Rao said, has indicated ?considering relaxation of restrictions on neighbouring-country investment regulations in respect of Sri Lankan companies through the RBI?s automatic clearance route (up to $150 million)?.

Emphasising the Centre?s nod for Lankans to invest in Indian stock markets from last month, Rao said: ?India and Sri Lanka have successfully cast off past baggage and seized the vast complementarities awaiting exploitation in a new phase of economic partnership.?

The council?s inaugural session, however, made no mention of the controversial Sethusamudram Ship Canal Project.

Lanka fears the deepening of the Palk Straits, off the southern Tamil Nadu coast, would rob Colombo of its significance as a major transshipment port in the region.

Elangovan later said it ?should not affect the port operations there (Lanka)? as the ?volume of world trade is increasing day-by-day?.